1. What are lines of credit for business and why are they important?
   1. Difference between secured vs. unsecured business lines of credit
2. How do lines of credit work for a business?
3. What are interest rates for business lines of credit?
   1. How to get better interest rates for business lines of credit
   2. What can affect interest rates for business lines of credit?
4. 3 best business lines of credit
5. Best-rated companies for business lines of credit

Running a business–small, medium or otherwise–depends on many variables, but the constant need at the center of everything is always cash flow. To power growth or simply to keep a business running day-to-day, steady cash flow is the fuel that keeps everything running. But funds for a business aren’t always readily available and, in times of financial need, business lines of credit for new businesses or existing businesses can be a life saver.

Lines of business credit can be complicated things though. Get a better understanding of what they are and how they work to make them work best for your business.

What are lines of credit for business and why are they important?

In short: a business line of credit is a means for businesses to gain access to financial credit they can use immediately or in the future. It’s similar to a small business loan, but instead of receiving a lump-sum up front and then repaying it over time, lines of credit for business are revolving loans more akin to credit cards. Once a business starts using their lines of credit for business, interest begins to accrue against the amount that has been borrowed. Those businesses using lines of credit pay off the balance over time.

Difference between secured vs. unsecured business lines of credit for business

There are two types of business lines of credit: secured and unsecured.

Collateral is required for a secured line of credit. Because a line of credit for business is a short-term liability for financial institutions, most lenders ask for collateral like inventory or accounts receivable. If the lendee is unable to make the payments at a future date, the lender will take possession of the collateral instead. Secured lines of credit often come with lower interest rates but can come with additional fees. An example of a secured lines of credit is a home equity line of credit (HELOC).

An unsecured line of credit doesn’t require any collateral but most lenders will require a personal guarantee of repayment before handing these out. These are usually good for established businesses with impressive credit histories, as the lack of collateral requires a greater amount of trust from the lender. Unsecured credit lines are usually less than their secured counterparts and can come with higher interest rates.

How do lines of credit work for a business?

When a business opens a line of credit they are immediately given access to a specific amount of agreed funds. These funds can be used for anything the business wants. Each month the business will receive a statement–like a credit card statement–detailing what they owe. It is then up to the business to repay this amount or face late fees, repossession of collateral and the continued increase based on interest.

Your payment, and the interest your payment accrues, is based entirely on the amount you spend. Once you’ve been approved for a line of business credit, the accessible funds are yours to spend however you see fit, along as you spend within the amount provided and have the financial resources to pay off the amount you spend. Payment schedules will vary based on the business opening the line of credit but repayment is usually made on a weekly or monthly basis.

What are interest rates for business lines of credit?

Interest rates for business lines of credit vary based on a number of factors. These factors usually revolve around the credibility of the business and how long it's been in existence, credit background, etc. - but can also be related to the amount of money accessible through the business line of credit, the amount of credit a business uses and the payment schedule they've set up. They are typically lower than those of business credit cards, but again, based on the specific business and specific line of credit, they can range, on average, from eight to eighty percent.

How to Get Better Interest Rates for Business Lines of Credit

Business lines of credit generally come with lower interest rates, but there are a few ways to lower the interest rate even further.

1. Keep your credit score strong

First, make sure that when you apply for a line of business credit that your credit score in a good place. The better your personal and business credit score, the lower an interest rate the lender in question will be willing to provide. Learn more about the finer points of credit cards and how to keep a strong credit score here.

2. Do the research

Before you apply for a business line of credit, make sure you study up on what financial institutions are offering. Interest rates can differ greatly between lenders and you should choose a lender and interest rate that best suits your business needs.

3. Pay faster

The faster you pay off your business line of credit, the less you’ll be paying in interest. It might not knock down your actual interest rate, but by making more payments in larger amounts, you’ll take care of the outstanding amount faster and pay less in interest over the long term.

4. Just ask for a lower interest rate

Seriously, lenders want to loan you money, and many will negotiate lower rates if you simply ask. The amount of difference in interest rates is of course entirely subjective to the whims of the lender, but it never hurts to ask.

What can affect interest rates for business lines of credit?

Interest rates for line of credits can be affected by a bevy of variables. A business's credit score can affect both interest rate and the extent of the business line of credit. The worse your credit score the less trustworthy your business will seem and the more likely a bank will give you a line of credit but do so with a low amount of spending ability and a high amount of interest.

The context of the financial environment at the time you apply for a business line of credit can also affect the interest rate. Lending institutions will look not only at the state of the economy but the condition of your business's particular industry. If either aren't looking so hot, you will see an increase in interest rates.

The amount of turnover your business does will be taken into account as well. High turnover signals to lending institutions that your business is doing well and a performing business is a better investment than one that is struggling.

The amount of time your business has been around will also be looked at. A business that has years of financial solvency will be able to get access to lower interest rates and higher amounts of credit because they seem like a confident investment. Businesses that are new to the scene are, right or wrong, considered to be less likely to succeed and thus less likely to be able to quickly pay off their credit lines.

3 Best Business Lines of Credit

There are many, many lending institutions that will provide lines of business credit. We've selected a few that we think are the best lines of credit for small businesses.

Fundbox

Fundbox is widely considered to offer the best lines of credit for startup business. A lot of lending institutions won’t work with businesses that aren't already established. As the name implies–startups are typically relatively new businesses. Fundbox will work with businesses that have at least three months of transactions in a business checking account. Be wary of Fundbox's short repayment periods and the increase in interest rates that can come along with it.

Credibly

The best lines of credit for bad credit saddled businesses is Credibly. This company has a ton of options in terms of line-of-credit related products through a vast lending partner network. Many of these lending partners require extremely low credit scores so most businesses can apply and get lines of credit.

Wells Fargo

If you are looking for unsecured business lines of credit for startups, you can't go wrong with Wells Fargo. The longstanding financial institution offers not one, but two unsecured lines of credit based on the length of time a business has been established. Newer businesses can apply for a smaller line of credit that comes with zero fees for the smallest businesses.

Best-rated Companies for Business Lines of Credit

1. OnDeck
2. Kabbage
3. BlueVine
4. Lendio

A business line of credit is an effective, easy way for small businesses to access funds when they need them. Click below and find out how Plastiq gives growing businesses better cash flow management by allowing them to pay with credit card, even where they aren’t accepted.